Most business owners want to grow their companies and research indicates investing is crucial to achieving that goal. So why aren’t more entrepreneurs spending on their companies?
Despite modest economic growth over the last few years, many entrepreneurs have succeeded in growing their businesses.
According to our latest economic research, 12% of Canadian small and medium‑sized businesses have achieved strong growth (over 20% annually) over the last three years and 29% have experienced sustained growth (between 5 and 19%). This means 41% of small and medium‑sized businesses grew much faster than the economy. What’s their secret?
Important for growth
Our research indicates that investment is one of the key factors in the growth of these companies. Three out of four entrepreneurs with growing businesses reported they’d increased production capacity by investing in facility expansions or new equipment.
The same proportion of those entrepreneurs say using advanced technologies, such as automated management systems, has enabled them to become more efficient, helping sustain their company’s growth.
That’s not surprising, since research indicates a direct correlation between investment in machinery and equipment (M&E) and productivity. In other words, companies that invest more become more competitive and grow more rapidly. The conclusion? Investing is essential to your company’s growth and success.
So why aren’t more entrepreneurs doing it? Business investment has shown only modest growth in Canada since the end of the recession. This is especially the case for M&E investment. The graph below shows the progression of M&E investment in Canada and the U.S. since 2010. The pattern is similar in both countries, but the pace is quite different.
U.S. leads the way
U.S. businesses have increased their investments significantly since the end of the recession, much more than Canadian businesses. Actually, Canadian business investments in sectors other than energy have barely increased since 2010.
This is a concern, especially at a time when rapidly changing technology means businesses need to invest more to keep up and remain competitive.
A good time to invest
The good news is that now is a great time to invest. The cost of borrowing is at a historic low and will stay low for a while. At the same time, there’s an abundance of credit available to businesses. Lastly, despite all the turbulence in the world economy, Canadian economic fundamentals remain strong.
Our survey found that a large majority of entrepreneurs see lots of potential benefits from growth, but many haven’t been able to achieve it in their company. If this is your case, a good place to start is by investing.
Where could you invest to improve productivity and fuel growth?
This article was published in BDC’s Profit$ magazine.
For highlights of current economic conditions, take a look at our Monthly Economic Letter.